AT&T: Battered and Bruised, But Not Beaten

From 1988 to 1994, AT&T reigned supreme atop the telecommunications rankings in Fortune’s annual Most Admired Companies survey. Today, less than a decade later, a beleaguered AT&T ranks 10th (out of 10) in the telecom sector.

From 1988 to 1994, AT&T reigned supreme atop the telecommunications rankings in Fortune’s annual Most Admired Companies survey. In 1993, the long-distance giant had the 16th best reputation overall among U.S. corporations. Today, less than a decade later, a beleaguered AT&T ranks 10th (out of 10) in the telecom sector, a reflection of the skepticism with which the financial community—and several other key stakeholders—reacted to CEO Michael Armstrong’s October 2000 restructuring announcement.

The decline in AT&T’s reputation is making life interesting for Richard Martin, since 1997 the company’s executive vice president of public relations and employee communications, who follows in the footsteps of some of the giants of corporate PR: Arthur W. Page, AT&T’s first in-house PR counselor; Ed Block, who presided over the break-up of the old Ma Bell monopoly; and Martin’s immediate predecessor, Marilyn Laurie.

“We don’t spend a lot of time worrying about the Fortune survey,” says Martin. “I’m not sure the survey is in the same league as the magazine. It’s skewed toward the investment community, toward analysts and people who sit on boards of directors. I know I get the survey, and I always give my company high marks and other companies low marks, and I know some companies make a concerted effort to pull all the surveys sent to their directors together and have someone in the PR department fill them all out. I don’t believe it’s a true measure of a company’s reputation.”

Martin is not alone in his criticism of the Fortune survey, which measures corporate reputation among a relatively small population—and one almost exclusively concerned about financial performance—and which relies on a methodology that’s open to manipulation. And when he points to studies that focus on other stakeholder groups—the company recently won two awards for customer service from J.D. Power, and was ranked among the top 25 most valuable brands in the world by identity consultancy Interbrand—he makes a good case that AT&T is still a powerful corporate brand.

But clearly it is not the leader it was a decade ago.

“I don’t think that AT&T’s reputation is as stellar as it was when we were a monopoly,” says Martin. “The environment we operate in today is very different. The issues we are dealing with are very different. I think there is a lot of confusion about the company and its strategy right now, and that’s reflected in our stock price and in the Fortune survey.”

The company’s stock was down 66 percent in 2000, after losing 13 percent on the day Armstrong announced his plan to break the 123-year-old company into four pieces. The move was prompted by the continuing meltdown of the core long-distance business, which still accounts for about half AT&T’s $67 billion in sales, and declined by 11 percent last year. The losses in the long-distance sector were obscuring gains in the wireless and cable sectors.

But the break-up plan was not well-received by investors—the financial community saw it as a 180-degree reversal of Armstrong’s previously-stated strategy of creating a “one stop shop” for communications services—and was even less popular with the Communications Workers of America and other unions, which represent about 35,000 of the company’s 165,000 employees.

“The announcement got massive media attention,” says Martin. “We saw more than 400 million media impressions over a two week period, half of which came on the first day, and more than half of which were quite negative in tone.” The Wall Street Journal, for example, suggested that AT&T needed “a little less vision and a lot more focus,” while The New York Times complained that “if only AT&T worked as hard at telecommunications engineering as it does at financial engineering, maybe investors would treat it with more respect.”

Armstrong had spent the two years since he arrived at AT&T transforming the company into a communications powerhouse, spending $105 billion to buy cable services that would enable it to offer consumers high-speed Internet access along with the company’s existing long-distance, wireless, and data services. Investors believed he had intended to bundle all these services together; Armstrong insisted he only intended to bundle services that used the same network—such as cable television and cable-modem Internet access.

On the morning of October 25 he conducted a series of television interviews and meetings with Wall Street analysts and institutional shareholders, explaining that the company was splitting into four pieces because the decline in long-distance revenues was overshadowing strong growth in other areas. The move would unleash shareholder value, he insisted.

“Clearly, this is a complete reversal of strategy,” said telecom analyst Adam Quinton of Merrill Lynch & Co.

“One of the questions I have been torturing myself with is whether we could have done something differently to make it clear that this was not a reversal in strategy,” Martin says. “I think we underestimated how emotionally invested some of the people who cover AT&T were. They had reduced the strategy that Michael Armstrong articulated over the years to a single phrase, ‘one stop shopping,’ and they had defined that to mean something different than we meant.

“It wasn’t that the reporting of our strategy was inaccurate as much as it was incomplete. It wasn’t that they were saying we were getting into soft drinks when we were really getting into popcorn. It was that they were saying we were getting into refreshments and they defined refreshments differently than we did.”

The negative coverage clearly influenced the financial community, but customers and employees greeted the news with more open minds.

“When we surveyed our customers, we found that about 80 percent said what they had read about the restructuring had not changed their opinion of the company. About 10 percent said their opinion was better and about 10 percent said it worse. When we interviewed our employees, on the other hand, we found that the proportions were about the same, but that more than 50 percent said they still had questions about what it meant for them individually.”

Some of those questions—such as where will I be working in four years—were unanswerable; others, relating to pensions and benefits, could be addressed, and were.

“I don’t believe employee communications is the public relations department’s job,” says Martin. “I believe it’s management’s job, and we are there to help them. That’s what we’ve been doing.”

The outside media coverage has not made it easy.

“I have always believed that half of what employees know about the company they get from external news sources, and that they give external media five times more credibility than they give internal media,” says Martin. “The stock price in particular has a tremendous impact on employees, because we gave all our people options back in 1996. But I think employees have a great deal of faith in our business strategy. In January, 17,000 unionized employees bought AT&T stock through our stock purchase plan. That’s half our unionized workforce.”

One reason for employee enthusiasm may be Armstrong himself. By all accounts, he is a great communicator, and Martin says his experience with the restructuring announcement has not impacted his optimism or his confidence. Armstrong is “the best communicator I have ever seen,” says Martin. “He has an optimism that is contagious. If you put him in a room with employees he leaves feeling pumped and they leave feeling optimistic and enthusiastic.”

Nor does Armstrong appear to hold the PR department responsible for the company’s recent misfortunes.

“Michael Armstrong tells me that he doesn’t give me all the credit when he gets good press and he doesn’t give me all the blame when he gets bad press,” says Martin. “He’s a very mature chief executive, and he’s been through this before. At Hughes he made a huge gamble after the Cold War ended, turning the company away from its defense business and transforming it into a consumer electronics company. There were a lot of people who didn’t understand that strategy, who questioned whether he could succeed, but in the end it proved to be the right decision and he was hailed as a visionary.”

Some CEOs in Armstrong’s position might be so focused on the short-term challenges that they lose sight of the long-term, and all the things public relations does to build reputation over time. That’s not the case at AT&T, Martin says, and points to the fact that the AT&T Foundation has already been restructured so that it can service each of the four new companies that will be created by the break-up, ensuring that the tradition of giving back to the community is not lost.

The PR department has gotten considerably smaller in recent years—at the time of the first break-up, it totaled 1,800 people, and prior to the Lucent spin-off there were 500, while today it’s down to around 2000. But its role has never changed. Martin still serves on the operating committee, the highest policy-making group in the company.

“Around here, the primary role of public relations is counseling,” says Martin. “Our first job as public relations people is to give advice, not on how to say things, but on what to do. Public relations is involved in policy. It’s here to help management solve business problems, by bringing an understanding of what stakeholders expect, what their concerns are. That’s the legacy of Arthur Page and Ed Block and Marilyn Laurie and the people they worked for.”

Indeed, respect for the public relations function is ingrained in the AT&T culture, institutionalized so that the strategic role of the PR department has survived the passing of individual leaders. It’s reflected in the way business unit managers work closely with their PR advisors, and in an understanding that good PR is not just about communication. And it’s reinforced by a thorough professional development program for PR executives—each of whom receive 40 hours of training a year, in functional PR skills and broader business topics.

“We don’t think reputation is a result of what you say about yourself,” says Martin. “It’s a result of what how you behave toward your employees, your communities, and your customers. No amount of warm and fuzzy advertising will change how people think about a company if those people don’t trust the company.”

That trust doesn’t appear to have eroded, despite the company’s current problems, although AT&T management recognizes that it needs to work on some other attributes. Research shows that there are still a great many positive attributes associated with the AT&T brand: trust, quality, reliability, innovativeness. “Any marketer would love to have those associations,” he says. But there are other perceptions that the company needs to change, which is why some its recent advertising has presented a more stylish, more fun image. The AT&T logo, once governed by a strict set of rules, has been set free—even bouncing across the screen in last year’s Olympic advertising.

“That ad had a semantic meaning and a pragmatic meaning,” says Martin. “The semantic meaning was that AT&T is now more than just a long-distance company. The pragmatic meaning was that there is something new going on at AT&T. We had some fun with the sacred logo, and in the process we presented a much more contemporary image, even a touch of whimsy.”

Martin will continue to work on enhancing the AT&T brand, but there are clearly other challenges ahead. One priority is preparing the four AT&T companies for restructuring, helping to set up PR and brand management organizations in each of them. Another priority is investor communications, to ensure that the financial community understands how the break-up will impact shareholders. And then there’s the public policy arena, where Martin currently spends about 30 percent of his time, trying to shape the regulatory landscape in the company’s favor.The four years since Dick Martin took over as head of corporate communications at AT&T have presented some difficult challenges—but the most trying times may still be ahead.